Birmingham business leaders have reacted with dismay at the Bank of England Monetary Policy Committe's decision to raise interest rates to five per cent.

The increase will put an extra burden on businesses of all sizes and all sectors, particularly exporters who will find the quarter point increase puts them further out of synch with European rivals.

With the pound becoming stronger, UK goods and services become more expensive abroad.

Birmingham Chamber of Commerce and Industry policy adviser James Cooper said: "We are concerned that this will damage the good economic growth seen in the UK and make life much more difficult for businesses in Birmingham.

"The strong pound, while good for holidaymakers and importers, is really hampering those who sell abroad.

"Controlling inflation is vital for the continued wellbeing of the economy, but we need the Bank to look at the bigger picture. This rise is bad news for local firms."

David Stevens, president of Solihull Chamber of Commerce, said: "It is not what the Chamber would like to have seen. Although we have to accept the MPC's brief to keep inflation rates within the Government's guidelines, the ones that suffer when rates are increased are the SMEs who not only work on small margins but depend on exports for their livelihoods."

Peter Mathews, president of the Midlands World Trade Forum, said: "Here we go again. Just compare the UK interest rate at five per cent with those of others abroad and it is easy to see why we find it so hard to compete.

"The rates of the European Central Bank, Denmark and the Norway are at 3.25 per cent, the Swedish even lower at 2.75 per cent - it is all loaded against UK exporters.

"The MPC needs to be very careful not to kill off enterprising companies looking to expand their operations abroad."

EEF West Midlands, the manufacturing lobby group, said the rates rise was premature and it was increasingly concerned at growing speculation that another increase was likely in the New Year.

This was despite signs that growth in the international economy, especially the United States and parts of Europe, was weakening; the expanding labour force provided more spare capacity in the economy than was commonly thought; and limited evidence that higher inflation was feeding through into higher wages.

Ian Smith, chief executive, said: "This decision was always going to be tight but we believe the evidence remained against a rise. We regard talk of a further rise in the New Year as misguided and unhelpful."

Gary Cowdrill, from professional services organisation, Birmingham Forward, said the rise was "bad news for industry and bad news for the retail sector".

He went on: "Manufacturing was already under pressure. The new rate is targeted at slowing down consumer borrowing, but we don't believe it will have any major impact since this increase has been so widely expected.

"The housing market is already finely balanced. At present it is underpinned by the buy-to-let side. The yields from these investments will mean people can only just cover their borrowings."

Any further rate rises would chop the market off at the knees, he added.

British Retail Consortium director general Kevin Hawkins said: "A rise was not needed now. With retailers reporting year-on-year inflation of only 1.5 per cent and price competition intense, it's clear inflationary pressure is not coming from the high street.

"Ironically, the only significant source of pay inflation is last month's six per cent rise in the National Minimum Wage.

"The Treasury, City and independent economists are forecasting Consumer Price Index inflation of only two per cent for 2007. The Bank should have waited until early next year to see the full impact of August's rate rise."

David Waller, Midlands chairman of accountants PricewaterhouseCoopers, said: "We can only hope that retailers will be able to weather this increase in the run-up to Christmas. This is the highest the base rate has been for five years and, with the combined impact of high energy costs, could put a dent in consumer confidence at a critical time.

"Talk of a further rate rise to curb inflationary pressure is far too premature and time must be allowed for the economy to digest five per cent."

Ronnie Bowker, senior partner at Ernst & Young described the MPC decision as a "bitter pill". He went on:

"What concerns me is that the MPC's rate rise strategy shows no signs of stopping, and we could potentially hit 5.5 per cent next year. This will impact the region's economy, and harm any confidence built up by manufacturers in recent months.

"But the future state of the economy may not be as gloomy as first thought.

The recent Item Club report indicated that the economy is in line to grow on average between 2.75 per cent and three per cent over the next few years, compared to the current Treasury forecasts of 2.5 per cent growth through to 2008. If this prediction rings true then the region's economic outlook may be better than expected."